Any reason to roll a 401k into a separate IRA account?

Hi all. When I left my last job, I rolled my 401k into an IRA. If I were to leave my current job, is there any reason not to roll my current 401k into the same IRA? thanks! Joe

Reply to
joe.weinstein
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is there any reason not to roll my current 401k into the

Diversity

Reply to
sandybeth

sandybeth wrote on [Tue, 8 Jan 2008 07:51:03 -0600]:

You don't know how divsersified or not that IRA is.

Reply to
Justin

  1. Potential hassle of dealing with former employer.
  2. IRS's ability to "freeze" 401k due to company malfeasance.
  3. Better ability to personally manage fees and expenses in IRA.
  4. Possibly better stretch/inheritance provisions in IRA.
  5. IRAs usually have wider selection of investment choices.
  6. Consolidation of statements and paperwork.
Reply to
kastnna

In addition to kastnna's fine list of reasons, add: By rolling over now, you can convert the amount from the 401(k) to a Roth IRA sooner. This of course is via a Trad IRA to Roth IRA conversion. Look at your tax situation and what you expect the market and tax rates to do in the coming years.

If your emphasis is on whether to roll it into a different IRA custodian yada (e.g. you have an IRA with Fidelity and want to know whether to open a second IRA with Vanguard), I'd just focus on getting it rolled over and then worry about custodians. This assumes your current IRA custodian seems competent enough.

Reply to
Elle

You didn't describe your current IRA. If it is at a brokerage or mutual fund company with a good selection of available investments, I can't think of any reason not to use the same custodian. If you rolled your previous 401(k) into a bank CD, then you should consider going to a mutual fund company such as Fidelity, T Rowe Price, or Vanguard.

If you roll your second 401(k) into an IRA with a different custodian, it may inhibit asset allocation, as you may want to sell a fund in one family and buy one in the other, and transfers between custodians are not nearly as smooth and easily done as if you can stay in the same family. You also will have more paperwork and tax reports to process.

I rolled all of my 401(k) accounts to Fidelity.

Dave

Reply to
Dave Dodson

Yes, of course there are reasons -- but who knows if they apply to you? ;-) Probably the most common reason is that you want to put the rollover money into an investment that isn't available where you hold your current IRA account.

E.g., here's a situation I've been investigating for myself. In a former employer's 401k, I hold shares of a fund that is closed to new investors. I'd like to stay in that fund, but the plan administrator will not let me transfer out the shares in kind, and if I just sell and roll over the money into my existing IRA held at one of the fund supermarkets, they won't let me buy back into the fund. OTOH, when I last talked to a rep at the fund company, it sounded like they would accept the rollover if I open a new IRA account directly with them.

-Sandra the cynic

Reply to
Sandra Loosemore

[Of course, the following is a list of reasons TO roll the current 401k into the IRA, not reasons NOT to]

All of which are very good reasons and why I generally would recommend for folks to roll from a former employer's 401k into an IRA almost every time.

More to the OP's question, though - why would one LEAVE one's money in a former employer's 401k?

  1. leaving money invested in funds one likes which may not be as available outside the 401k (ie. closed funds or funds for which you'd have to pay a load)
  2. possible penalty-free withdrawals at 55 instead of 59-1/2
  3. if one has substantial NUA (Net Unrealized Appreciation) on employer stock in that 401k (which may be better to transfer to a *taxable* account, depending on circumstances)

Any others? Are there any effects to watch out for when one has substantial *non*-deductible contributions in the regular IRA?

Reply to
BreadWithSpam

Good point, Elle. I believe the new law allows for conversions directly from a 401k to a Roth, but I could be mistaken. Depending on the situation it may still be an excellent reason to move money out of a 401k (just like Elle said).

Reply to
kastnna

"kastnna" wrote

I checked quickly before posting, and I thought I saw that this is not currently allowed but rather, per the law, starts in 2010. The OP (or anyone else) should double check. :-)

Reply to
Elle

I checked again and see I am mistaken. It starts in 2008 (per the Pension Protection Act), like you say above, kastnaa. I am not sure if there are any restrictions. Google...

Reply to
Elle

I need to be clearer... All I'm asking is that if/when I roll my current

401k into an IRA at Schwab, for instance, and if I already have an IRA at Schwab, is there any reason to create a new different IRA at Schwab for this new rollover, as opposed to rolling it into the existing IRA? In fact, even before I do this rollover, I already have 3 IRAs (two traditional, one ROTH) at Schwab, because I was given the impression at the time, that my first 401k rollover should go into it's own account rather than the one I already had. I would probably like only one traditional IRA with everything in it... Joe
Reply to
joe.weinstein

Nope. If you are going to roll a 401k into an IRA, there's no need to roll different former employers plans into separate IRA accounts.

There used to be a reason to keep IRA accounts separated into distinct "contributory" and "non-contributory" (rollover) accounts. Until 2002(?) the rules did not permit rolling a contributory IRA into a new employer's 401k, so if you ever wanted to be able to roll back into a

401k, you'd keep them separate. That rule no longer applies, and even when it did, most folks had little reason to roll back into a 401k from an IRA.

There's no reason for you not to roll that 401k into the existing IRA.

(unless, as I said in another post, you have a reason not to roll over the 401k in the first place)

Reply to
BreadWithSpam

What about naming different beneficiaries in each IRAs to maintain the intended stretch provisions upon death? A beneficiary of an IRA that has not entered the RMD stage has the option of distributing the IRA over THEIR life expectancy. If multiple benes are named, everyone must distribute over the life expectancy of the OLDEST beneficiary. To avoid this, people used to create multiple IRAs with a different bene for each.

Have the recent laws changed this?

Reply to
kastnna
[reasons to have multiple distinct traditional IRA accounts]

Nice. Hadn't thought of that.

Not that I know of.

(Should be thinking about these issues - I'm in the middle of updating beneficiary info on my own IRA account(s)).

Reply to
BreadWithSpam

(1) I believe an IRA account funded solely with qualified plan rollovers has a higher bankruptcy exemption amount than one commingled with annual contributions.

(2) Even though commingled IRA accounts now can be rolled back into a qualified plan, some (many?) custodians won't allow rollovers into a qualified plan from a commingled account because it is a Very Bad Thing(tm) for everyone if non-deductible IRA contributions end up in a qualified plan. While such a prohibition won't guarantee that won't happen, it does significantly lower the odds of it happening -- presumably down to the custodian's comfort level.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Reply to
Rich Carreiro

I found another reason someone might want multiple IRAs. For anyone who contemplates withdrawing before age 60, under the substantially-equal- payments plan, to avoid penalties, this substantially-equal-payments program applies on a per-IRA basis, so if you have 10 IRAs you can create 1-10 separate withdrawal plans at separate times and separate rates as needed, but with only one IRA you would have to make only one withdrawal plan that would have to cover all your needs for the 5 years or till you're 60, whichever is later. Joe

Reply to
joe.weinstein

A similar strategy I read some time back: Same split as above, ten accounts. Invest each in its own market sector so the total portfolio is properly diversified. Convert all to Roth. At year end, leave the Roth only for the top performing account (if positive), undo other 9 conversions. I am not advocating this, it did strike me as a bit over the top. JoeTaxpayer

Reply to
joetaxpayer

I'm probably being dense, but assuming all accounts have positive returns, what's the benefit?

-Will

william dot trice at ngc dot com

Reply to
Will Trice

Presume the intent is to Roth one's money at as low a (tax) rate as possible. Start with 2 accounts each $10K. One goes up 10%, the other, 30%. Since either way the amount converted and taxable is $10,000, what would you rather, having it split $11K IRA/ $13K Roth or the reverse?

I can see how this strategy, while a bit convoluted, is legal and does provide an advantage if the numbers are high enough. I've done numerous Roth conversion transactions for clients, never a reversal, so I am not familiar with the paperwork need at reversal time or what paper shows up in Feb. for taxes (on the reversals).

To answer pointedly - the benefit is captured only if the highest return is well above the average. Again, I don't claim this to be my idea, it's just out there.

JOE

Reply to
joetaxpayer

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